As Congress considers a third major COVID-19 stimulus plan, a major point of contention is over who should get the direct payments and how big they should be.
In the first two rounds of stimulus checks — $1,200 last spring and $600 in December — nearly all Americans were eligible for the handout.
That made sense in the beginning, as the economic crash the pandemic initially produced was so quick and so severe that there wasn’t time to try to target the assistance. The idea, as it was during the Great Recession a decade earlier, was to throw as much money as fast as possible into the economy in hopes to avoid a total collapse.
Enough time has passed, however, since the onset of the pandemic to take a more targeted approach with the aid: not only to reduce the cost (the country has already spent $4 trillion of mostly borrowed money on coronavirus relief), but also to get the biggest bang from the investment.
A group of moderate Republicans met on Monday with President Biden to pitch their alternative: instead of $1,400 that the president wants to give to most adults, the GOP plan would give $1,000 per adult for single people earning up to $40,000 and married couples earning up to $80,000. After that, the benefit would scale down, with those making $50,000 or above (or $100,000 for a couple) getting nothing.
That change alone would cut almost $400 billion from the president’s $1.9 trillion plan.
Besides the savings, most economic research shows that targeting stimulus checks to those at the lower end of the earning spectrum provides the greatest return in terms of boosting the economy. As the first two rounds of stimulus checks have shown, lower-income individuals will quickly spend the money to pay bills and cover other necessities, while higher-income individuals will save the money because they mostly kept their jobs. For households earning more than $78,000 a year, just $45 of the $600 December stimulus check was spent, according to the estimates of Opportunity Insights Economic Tracker, a nonprofit research group of economists.
Applying that same spending vs. savings ratio to the administration’s recommendation produces this: It would cost the government $200 billion to give $1,400 checks to these same households, but only $15 billion would find its way soon into the economy. A rotten return on investment.
Of course, as long as the government is handing out “free” money, few Americans are not going to take it. But such aid now should be reserved for those who most need it: those who’ve lost their jobs or have seen their income drastically reduced.
On this point, the Republican alternative makes more sense than the president’s plan.